What is an Acceleration Clause?

An acceleration clause is a provision in a mortgage agreement that allows the lender (mortgagee) to demand the full repayment of a loan if the borrower (mortgagor) defaults on their payments. For example, if a borrower misses a payment on the principal or interest, the acceleration clause can make the entire remaining balance of the loan immediately due and payable, regardless of the original repayment schedule.

Why is the Acceleration Clause Important?

Without an acceleration clause, lenders would have limited options when borrowers default. They could only foreclose or sue for the amount in default, which may not be sufficient to protect their interests. The acceleration clause empowers lenders by expanding their remedies, ensuring they can act swiftly to recover the debt.

Traditional vs. Modern Clauses

Historically, acceleration clauses were simple and straightforward. They outlined that upon default, the remaining debt becomes due. However, modern clauses are often more broadly worded, encompassing various definitions of default and giving lenders greater flexibility.

Key Considerations When Drafting an Acceleration Clause

When including an acceleration clause in a mortgage agreement, several factors should be considered:

• Defining Default: It is essential to clearly outline what constitutes a default. This can include missed payments, failure to maintain insurance, or other breaches of the mortgage agreement.
• Automatic vs. Elective Activation: Should the clause activate automatically upon default, or should it be at the discretion of the lender? Most lenders prefer the latter, as it offers a broader range of remedies and avoids immediate foreclosure.

Legal and Practical Implications

In states like Florida, lenders can enforce an acceleration clause even if it only appears in one of the two documents (either the mortgage instrument or the promissory note). This flexibility highlights the critical role of clear and thorough drafting.

However, courts may deny acceleration in cases of excusable neglect by the borrower or if the lender’s actions are deemed unconscionable or inequitable. For example, if the lender exhibits “unclean hands,” the enforcement of the clause may be challenged.

Ormond Beach Law Firm

If you’re facing foreclosure on a mortgage, contact Ormond Beach reverse mortgage foreclosure defense attorney Andrew J. Pascale today at 877-667-1211 to discuss your case. Please note that this blog does not provide legal advice and is intended for illustrative purposes only.